February 25th, 2011

Economics & Finance

Venezuela: Economy shrank 1.4% last year, despite a slight uptick during the last quarter

Venezuela's economy contracted 1.4% in 2010, its second consecutive yearly drop, but the country showed signs of recovery during the final quarter, according to the Central Bank. The drop in gross domestic product, coupled with 27% inflation, made Venezuela end 2010 with Latin America's worst economic indicators. Venezuela has been in recession for two years, and its economic problems have lingered even as other nations in the region have resumed growing. The Venezuelan economy shrank 3.3% in 2009. (AP, 02-22-2011; http://finance.yahoo.com/news/Venezuela-Economy-shrank-14-apf-3058827811.html?x=0&.v=1)

Private sector GDP declines for eight quarters in a row

According to recently released Central Bank figures show that slight economic growth in Q4 2011 is underpinned only by the results of state-run companies and by public spending, as the government increases indebtedness at a rapid pace despite rising oil prices. The country is still far from regaining the ground it lost to recession. In fact, Venezuela's production in the fourth quarter of 2010 declined 5.2% compared with the same period of time in 2008. (El Universal, 02-23-2011; http://english.eluniversal.com/2011/02/23/private-sectors-gdp-declines-for-eight-quarters-in-a-row.shtml)

Overall imports up 33%, and imports by the government rise by 72% in Q4 2010

The Central Bank of Venezuela (BCV) reported that in the fourth quarter of 2010, imports went up 33.1% compared with the same period of time in 2009, to total USD 11 billion. Exports accounted for an income of USD 17 billion, including USD 16.74 billion for oil sales. At the same time, Venezuelan government's imports amounted to USD 3.81 billion in the fourth quarter of 2010, a 72% increase over the same period in 2009. "Imports of food, electrical appliances, machinery and common metals were particularly important," said the BCV report. Public sector's imports, in annual terms, have increased by 42 percent in 2010. (El Universal, 02-23-2011;http://english.eluniversal.com/2011/02/22/imports-up-33-percent-in-fourth-quarter-of-2010.shtml) and http://english.eluniversal.com/2011/02/23/govnt-imports-climb-72-percent-in-q4-2010.shtml)

Venezuela is negotiating a $4 billion financing with China for a joint investment fund, said Venezuelan Planning and Finance Minister Jorge Giordani yesterday. The amount represents the third installment of a financing signed in 2009 in exchange for oil sales in advance. (Veneconomy, 02-25-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25059&idc=2)

Trade Minister claims imports are necessary to bring down inflation

Among the outstanding statements made Economic Sector ministers at their hearings in at the National Assembly, one that stands out is Trade Minister Edmée Betancourt’s testimony that it “is necessary to import” some first-need food staples in order to fight inflation. She added that the measure also allows the government to fight speculation. (Veneconomy, 02-23-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25009&idc=2)

Businessmen decry weakened productive sector in Venezuela

The Venezuelan Federation of Trade and Industry Chambers (FEDECÁMARAS) openly differ with the government on the nation's economic performance. While the Executive Office said that a GDP increase (0.6%) in the fourth quarter of 2010 is an economic recovery and growth, FEDECÁMARAS says the economy continues to shrink. "No one can deny that the private sector continues to decline. It tumbled even in the fourth quarter of 2010," said Noel Álvarez, the president of FEDECÁMARAS. (El Universal, 02-23-2011; http://english.eluniversal.com/2011/02/23/businessmen-decry-fragile-production-apparatus-in-venezuela.shtml)

Venezuelan industrialists forecast drop in sales of six food items

The Venezuelan Chamber of Food Processing Industries (CAVIDEA) predicted a 1.52-10.30% drop in sales of six items of the basic food basket during the first half of 2011. (El Universal, 02-23-2011; http://english.eluniversal.com/2011/02/23/venezuelan-industrialists-forecast-drop-in-sales-of-six-food-items.shtml)

Government claims the growth in agricultural production meets people's needs

According to Agriculture and Land Minister Juan Carlos Loyo, agricultural policies implemented by the Venezuelan Government over the past 12 years have generated a 44% growth in the overall production, which shows an increase of food to satisfy the needs of Venezuelans and guarantee agrifood security and sovereignty. The Minister made the claim during his testimony to the National Assembly upon submitting his annual report. (AVN, 02-23-2011; http://www.avn.info.ve/node/44854)

Heinz announced activities in its San Joaquín plant continue paralyzed by the union, despite a call made by the Labor and Social Security Ministry authorities for a resumption of activities last Wednesday. The plant stopped 24 days ago. (Veneconomy, 02-24-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25033&idc=3)

Commodities

Venezuela does not anticipate an OPEC meeting on Arab unrest

Venezuela does not expect an emergency OPEC meeting in the short term because ample supplies in consuming nations can absorb any disruption from turmoil in the Middle East, a local paper said on Wednesday. Venezuela, which has not diversified from a decades-old reliance on crude as the backbone of its economy, routinely calls for higher prices and says $100 per barrel is fair. Oil Minister Rafael Ramirez said he was consulting his counterpart at top OPEC exporter Saudi Arabia, Ali al-Naimi, and neither of them expected any disruption to global supplies due to the large reserves held by major consuming nations. (Reuters, 02-23-2011; http://www.reuters.com/article/2011/02/23/venezuela-mideast-oil-idUSN2320853820110223)

Venezuela evaluating options for working the Las Cristinas gold mine

Government sources say Venezuela is evaluating the possibility that foreign companies involved in the massive Las Cristinas gold deposit, just weeks after it canceled the contract with the Canadian miner Crystallex. Crystallex (KRY) reported in early February that Venezuela decided to unilaterally terminate its contract to develop Las Cristinas. Immediately afterward, the Russian-Canadian company Rusoro (RML) said it was interested in exploiting the huge gold deposit. (VHeadline, 02-22-2011; http://www.vheadline.com/readnews.asp?id=101272)

Union members hold Chavez responsible for ALCASA aluminum's uncertain future

President Chavez has been held of being responsible for the state of affairs at Alcasa aluminum. Uncertainty seems to be the overriding sentiment at the plant after the government brokered an agreement with the trade unions at the nearby Venalum aluminum plant last week. Members of the Unidad Alcasiana labor group complained that neither Alcasa trade unions nor Basic Industries & Mining Minister, Jose Khan Salamat are coming up with solutions to end the current conflict. (VHeadline, 02-22-2011; http://www.vheadline.com/readnews.asp?id=101265)

Billions of dollars required to expand oil production in Venezuela

Venezuela’s state-owned oil industry must begin an ambitious investment program in oil exploration and production in order to expand its capacity to extract oil throughout the next decade. According to Asdrúbal Baptista, an economist and professor at the Institute of Higher Education in Business Administration (IESA), Venezuelan’s premier management school, the ratio of oil extraction volume to capital allocated for oil exploration and production projects suggest that Venezuela should invest USD 215 billion from 2011 to 2020 to expand production capacity to 4 million barrels a day. This means that Venezuela should be investing approximately USD 20 billion a year. (El Universal, 02-24-2011; http://english.eluniversal.com/2011/02/24/billions-of-dollars-needed-to-expand-oil-production-in-venezuela.shtml)

Construction declines amid lowered investment and input scarcities

Venezuela's construction activity has declined for five quarters in a row, yet during the past three months of 2010 the fall was sharper (-8.6%), according to data published by the Central Bank of Venezuela (BCV). This decrease was due to a slower execution of Venezuelan public spending in the infrastructure sector, lower private investments and failures in the provision of inputs such as cement, rebar’s and aggregates. (El Universal, 02-24-2011;  http://english.eluniversal.com/2011/02/24/construction-declines-amidst-poor-investments-and-scarce-inputs.shtml)

ENI’s appraisal well in Venezuela is successful

Success in the Perla 4 appraisal well in the Cardón IV block in the Gulf of Venezuela brings the Perla gas in place estimate to over 16 tcf. The well is in 60 m (~200 ft) of water and showed 17 MMcf/d of gas and 560 b/d of condensate during a production test. Cardón IV is operated by a joint company owned 50% by ENI and 50% by REPSOL. The venture has concluded the front-end engineering and design for early production of 300 MMcf/d of gas I 2013. (Offshore, 02-24-2011; http://www.offshore-mag.com/index/article-display/1095911294/articles/offshore/field-development/latin-america0/2011/February/eni-appraisal_well.html)

Politics

Venezuela protesters end 3-week hunger strike

Protesting students ended a three-week hunger strike Tuesday, saying they stopped because the Organization of American States is discussing their allegations of human rights abuses by Venezuela's government. Student activist Lorent Saleh said that Venezuelan authorities also agreed to review the cases of people considered political prisoners by the protesters."The government responded to our demands," Saleh said at a news conference. (Americas msnbc, 02-22-2011; http://www.msnbc.msn.com/id/41721815/ns/world_news-americas/)

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.